New ETF: Muni Bond Funds for CA (and NY)

[tricky88]

I know I need more bonds in my portfolio. And since I'm buying in my taxable account, I wanted to get California municipal bonds to decrease my state taxes.

Several weeks ago this ETF showed up: CMF - iShares California Muni
Any thoughts on this? Buying individual bonds always seemed smarter to me as it eliminates the expense ratio that's built into bond funds (and ETFs). And even though it's kind of small here - .25% - the return is smaller too, so it's proportionally something that would grow kind of big if held for several years and eat into my returns.

Any thoughts on this product? I'm in my late 30s, living in CA for at least a few more years and other than some TIPs, I have almost no bonds, and too much cash on hand

[ziggy29]

The thing to remember about state-specific muni bonds is that the securities are usually priced such that they are only better than taxable bonds for taxpayers in the maximum brackets. For example, if the maximum combined fed/state tax rate was 40% in some state and taxable bonds of similar quality and maturity were yielding 6%, munis would probably yield little more than 3.60% (60% of 6%). If the deal got much better than that, those in the highest brackets would buy more and drive their yields down.

[ats5g]

I don't really see the advantage of the CA muni ETF's over Vanguard's cheaper muni funds [like VCITX or VCAIX]. Vanguard's funds hold many, many more bonds [more diversification], have no purchase fees [commissions, bid/ask] if purchased directly from Vanguard, and once you hit $100,000 in the fund, you pay even less in expenses.

Beware buying individual munis. Many of them are extremely illiquid. See also Muni bond funds and ind bonds, The dark side of the muni, and Vanguard's tax equivalent calculator.

- Alec

[RetireeRobert]

Originally Posted by ats5g

I don't really see the advantage of the CA muni ETF's over Vanguard's cheaper muni funds [like VCITX or VCAIX]. Vanguard's funds hold many, many more bonds [more diversification], have no purchase fees [commissions, bid/ask] if purchased directly from Vanguard, and once you hit $100,000 in the fund, you pay even less in expenses.

Beware buying individual munis. Many of them are extremely illiquid. See also Muni bond funds and ind bonds, The dark side of the muni, and Vanguard's tax equivalent calculator.

- Alec

Vanguard is usually good.

Also check out Nuveen closed end muni state funds:

Closed End Funds :: Our Product Line :: Municipal Bond Closed End Funds

If you play your cards right, you might be able to buy them at discount to NAV.